Pidilite Industries. Institutional Equity Research. FMCG April 05, 2017

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1 Pidilite Industries Reco Range Stop Loss Target FMCG April 05, 2017 Background & Business Incorporated in 1959, Pidilite Industries (Pidilite) is a dominant player in India s adhesives/sealants and construction chemicals industry with iconic brands like Fevicol, M-Seal, Fevikwik and Dr. Fixit. We believe that Pidilite s core strengths continue to remain intact despite near-term headwinds on volume growth front due to weak consumer demand. Investment Rationale Strong Foundation for Sustainable Growth: Owing to significant enhancement in management bandwidth to transform the Company from Professionally run by Family to run by Family of Professionals, Pidilite has laid foundation for sustainable growth. 1 Year Stock Price Performance Secret Sauce of Success: Over the years, Pidilite has successfully leveraged its core strengths to drive growth. That includes an expertise to identify underserved segment where consumer demand is not being fulfilled, intervention with a brand in a commoditised space to fill the demand, and significant focus on developing, nurturing as well as enhancing relationship with the chain of influencers as well as the end-users Apr-16 May-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Top-notch Advertising Strategy to Aid Growth: Humorous advertising campaigns conceptualised by O&M have been the backbone behind making consumers aware of brands and their benefits, which also ensured Pidilite to win several accolades. Improved Traction in International Biz: Focus on emerging economies in Asia & Africa and reducing share of Brazilian business augur well for Pidilite s international division in coming years. Outlook & Valuation Unmatched market leadership in under-penetrated category, strong brand equity, robust pricing power and superior management bandwidth would continue to drive growth for Pidilite, going forward. We expect Pidilite to report consolidated sales of Rs57.2bn and Rs65.8bn and net profit of Rs8.5bn and Rs10bn in FY17E and FY18E, respectively. Risks Delay in recovery in consumer demand. Northward movement in crude oil prices. Note: *CMP as on April 03, 2017 Key Figure Market Cap ( Rsbn/US$mn ) 360/55.3 Current Price 703 Target Price 785 Promoters / Public & Others 69.6/30.4 FY18E P/E (x) 36.2 Revenues CAGR (FY16-18 %) 10.7% PAT CAGR (FY16-18 %) 14.8% High competitive intensity. Y/E Mar (Rs mn) FY16 FY17E FY18E Key Ratios FY16 FY17E FY18E Revenues 53,695 57,257 65,832 P/E (x) EBITDA 11,739 12,988 15,030 P/BV (x) Ebitda Margin % EV/EBITDA (x) Adj.PAT 7,555 8,501 9,952 ROE (%) Source: Company, RSec Estimates Research Team; Contact: (022) ; rsec.research@rcap.co.in 1

2 JSW Energy Reco Range Stop Loss Target Power April 05, 2017 Background & Business JSW Energy (JSWEL) a group company of Jindal South West (JSW) Group headed by Mr. Sajjan Jindal is the first Independent Power Producer (IPP) in Karnataka with a capacity of 4,531MW. In May, 2008, the Company has a Joint Venture (JV) arrangement with Toshiba Corporation, Japan for setting up of Turbine & Generator manufacturing facility in India. 1 Year Stock Price Performance Investment Rationale High Exposure to Merchant Power Biz to Continue: Looking ahead, we envisage the merchant rates would harden further on the back of lower PLF and revival of SEBs post implementation of UDAY scheme, while JSWEL continues to rely on imported coal. Further, 35% of its total capacity of 4,531MW is under the merchant route, which provides higher profitability in case merchant rates hardens on expected lines Largely Dependent on Spot Imported Coal; Coal Prices Expected to Fall: Despite JSWEL standing lower in fuel security (due to excessive dependence on imported coal), we believe that recent correction of 10% in coal prices following sharp rise of 40% from Jun 16 will get oset higher merchant rates. We expect the demand to revive in 1QFY18E in the South especially in Karnataka given lower demand for past few months. Apr-16 May-16 Jun-16 Jul-16 Aug-16 Note: *CMP as on April 04, 2017 Sep-16 Oct-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Expansion Plan on Track: Over the past 6 years, JSWEL has enhanced the power generation capacity from 260MW to 4,531MW. It operates 4,531MW (Thermal: 3,140MW & Hydel: 1,391MW) of power generation capacity with the vision to achieve 10,000MW by We believe that securing 650MW power plant contract in Karnataka would provide a long-term cash-flow visibility with high RoE. Outlook & Valuation We believe that the negatives relating to weak merchant realization have already been priced in. With sustainable core RoEs of 13-15%, we believe that current valuation at 1.0x P/B its FY18E provides margin of safety. Risks Lower-than-expected merchant realizations. Higher-than-expected coal prices. Key Figure Market Cap ( Rsbn/US$mn ) 105.3/16.1 Current Price 64.0 Target Price 70.0 Promoters / Public & Others 75/25 FY18E P/E (x) 9.4 Revenues CAGR (FY16-18 %) (1.2) PAT CAGR (FY16-18 %) (6.3) Y/E Mar (Rs mn) FY16 FY17E FY18E Revenues 99,689 91,913 97,280 EBITDA 41,446 41,137 40,246 Ebitda Margin % Adj.PAT 12,455 10,697 10,941 ROE (%) Source: Company, RSec Estimates Key Ratios FY16 FY17E FY18E P/E (x) P/BV (x) EV/EBITDA (x) Research Team; Contact: (022) ; rsec.research@rcap.co.in 2

3 Recommendations Summary Total Recommendations Numbers STOCKS 36 CLOSED 32 POSITIVE 22 NEGATIVE 10 OPEN 4 We do not keep open positions more than four at any point of time. Assuming Rs1 lakh investment in every stock, the cumulative investment stand at Rs4 lakh. Till date, our closed calls have given profit to the tune of Rs80,150 since inception. Amount Invested (Rs) Cumulative Profit (Rs) % Return % Strike Rate on closed calls 69% Open Positions Stock Symbol Sector Reco Date Reco Price CMP SL Target Remarks PIDILITIND FMCG 5-Apr BUY JSWENERGY Power 5-Apr BUY AUROPHARMA Pharma 2-Mar HOLD NIITTECH IT 17-Feb HOLD 3

4 Closed Positions Stock Symbol Sector Reco Date Reco Price Exit Price Exit Date Return % Remarks DABUR FMCG 3-Feb Mar % Booked Profit NCC Construction 2-Mar Mar % Booked Loss ABFRL Retailing 17-Feb Feb % Booked Profit HCLTECH IT 3-Feb Feb % Booked Profit INOXWIND Capital Goods 17-Jan Feb % Booked Loss JUBLFOOD FMCG 17-Jan Jan % Booked Profit ASIANPAINT FMCG 4-Jan Jan % Booked Profit CROMPTON Capital Goods 1-Dec Jan % Booked Profit CADILAHC Pharma 4-Jan Jan % Booked Profit ASHOKLEY Auto 16-Dec Dec % Booked Profit TITAN FMCG 16-Dec Dec % Booked Profit FEDERALBANK Banking 1-Dec Dec % Booked Loss CADILAHC Pharma 16-Nov Nov % Booked Profit TECHM IT 16-Nov Nov % Booked Profit AMBUJACEM Cement 3-Oct Nov % Booked Loss INFY IT 17-Oct Nov % Booked Loss ABFRL Retailing 3-Oct Oct % Booked Profit ASHOKLEY Auto 17-Oct Oct % Booked Profit BAJAJCORP Consumer 1-Sep Oct % Booked Profit Continued... 4

5 Closed Positions Stock Symbol Sector Reco Date Reco Price Exit Price Exit Date Return % Remarks SUNPHARMA Pharma 17-Aug Sep % Booked Loss NAVKARCORP Logistics 16-Sep Sep % Booked Loss AUROPHARMA Pharma 16-Sep Sep % Booked Profit INFY IT 1-Sep Sep % Booked Profit KEC Capital Goods 30-Jul Sep % Booked Loss MGL Oil-Gas 17-Aug Aug % Booked Profit ABFRL Retailing 30-Jul Aug % Booked Profit PFS NBFC 2-Jul Aug % Booked Loss UPL Agrochemicals 15-Jul Jul % Booked Profit CROMPTON Capital Goods 15-Jul Jul % Booked Profit SUNPHARMA Pharma 2-Jul Jul % Booked Profit PERSISTENT IT 21-Jun Jul % Booked Loss NBCC Infrastructure 21-Jun Jul % Booked Profit 5

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